Bank split in two but final bill unknown

THE Government has unveiled its plan to deal with Anglo Irish Bank but still can’t say what the final cost to taxpayers will be.

Amid growing political and economic pressure, the Cabinet has agreed to split Anglo into two separate entities – a “funding”, or savings bank, which will retain its deposits and an “asset recovery bank”, which will run down its loans over time.

The “Anglo” brand will be consigned to the dustbin, with the two banks given different names. But both banks will require capital upon their establishment – meaning the estimated €24 billion bill to taxpayers could increase even further.

However, both Taoiseach Brian Cowen and Finance Minister Brian Lenihan repeatedly refused to say if the final cost would exceed €24bn, even though they have received estimates on the issue from the National Treasury Management Agency.

Mr Lenihan said it would be a task for Financial Regulator Matthew Elderfield to determine precisely how much capital the two new banks would need.

The regulator’s decision will be announced by October, but the opposition questioned the delay, saying yesterday’s announcement did nothing to end the uncertainty about the bank.

Mr Lenihan conceded the announcement was “only a stage in a process” but insisted that a “strategic direction” had now been established for the bank which would help bring “finality” to the Anglo problem.

The Government has been under intense pressure to resolve the issue as Ireland’s borrowing costs soar amid international concern as to whether the country can shoulder the enormous cost of the bailout.

In announcing its plan, the Government effectively rejected the proposals by Anglo management to carve a “good bank” and a “bad bank” out of the troubled institution. The management’s proposals centred on loans left over in Anglo after its high-risk development-related loans transferred to NAMA.

Under the proposals, the bad bank would have taken the lower-quality loans left over and worked them out over time. The good bank would have taken the performing loans left over, retained the bank’s deposits and sought to lend and grow.

The Government, however, has rejected this and instead opted for “a variation” on the management proposals.

The bad bank, or asset recovery bank, will go ahead, but it will take all of the leftover loans, both performing and lower-quality, and work them out, possibly over a 15-year period. The funding bank will retain the bank’s deposits but, crucially, not engage in any new lending.

Mr Lenihan said the funding bank, while not engaging in lending, would “provide a secure home for Anglo’s depositors and any new customers who wish to deposit their funds with it”. It means there is unlikely to be a flight of capital from the bank.

The asset recovery bank’s dedicated focus would be “on the work-out over a period of time of the assets not being transferred to NAMA in a manner which maximises the return to the taxpayer”, said Mr Lenihan.

Fine Gael finance spokesman Michael Noonan said the announcement was “a fudge” which brought no clarity on the final bill to taxpayers.

Labour finance spokeswoman Joan Burton said the Government had merely “kicked the can” until October.

Sinn Féin finance spokesman Arthur Morgan said Anglo should have been allowed “to crash from the very beginning”.


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